Strip Club Fee Overturned In Texas

State plans to appeal; Illinois, S. Carolina mulling similar measures

AUSTIN, Tex. - Travis County Judge Scott Jenkins on Friday struck down as unconstitutional a Texas statute imposing a $5 entrance fee on strip clubs in the state, with the revenues to be divided in unspecified percentages between organizations providing sexual assault services and health services to the poor.

The case was made by Stewart Whitehead, a former state assistant attorney general now working for a large Texas law firm that specializes in litigating tax matters. He was assisted by two other ex-assistant attorneys general, Doug Becker and Toni Hunter, all representing the Texas Entertainment Association, which represents more than half of the topless clubs in the state.

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"They didn't call it a tax, but that's clearly what it was," said Ft. Worth-based attorney Steven Swander, a veteran of litigation involving adult businesses. "I testified against the bill in the legislature, and in the original hearing that I went to, the author of the bill [freshman Rep. Susan Cohen of Houston] presented it as a revenue measure, and there was no claim of link to the business. It was just, 'They make a lot of money; they should give some of it to these worthy programs,' and I'm sure some of their entertainers could be victims of sexual crimes or be victims in some sense."

However, apparently one major sticking point for Judge Jenkins was the inclusion of health services for the poor as a beneficiary of the fee, since the judge could find no link between the expressive quality of the exotic dancing and the need to treat the medical conditions of the impoverished. However, the Dallas Morning Newsreported that the health insurance provision had been added "in part to make the measure more politically palatable."

"The issue was the justification for the fee or tax by the state," Swander explained. "If you look at it as just to generate revenue, that would be analyzed under strict scrutiny, and that's what the judge did in the first part of the judgment. He found it to be a content-based tax, and it was never shown by the state that there was a compelling governmental interest. Then he said, kind of contingently, 'Even if I didn't find that,' and it was only linked to a substantial governmental interest or otherwise the content-neutral justification that we deal with all the time, he found there was not a link between the fee and the 'justification' of necessity for the public health programs; that was not shown to be linked. He found there was some evidence linking the businesses to sexual assaults, which would justify some money, but there was no proportionality, no link of the amount of contribution of the businesses to the total sexual assault funding need. So for that reason, there was no substantial governmental interest link there; none as to the health care, and really, as to the sexual assault, there's not narrow tailoring of the fee to only the proportion or 'contribution' these businesses make toward the total sexual assault crime, and therefore, to the sexual assault program funding."

Even so, Swander felt that the clubs might not have objected if the fee had been just $1, but with the clubs being forced to add an additional one-fourth to one-third of their existing cover charge to satisfy the fee requirement, the owners felt that that was asking too much of their patrons.

Swander also noted that Judge Jenkins didn't even reach one of the arguments against the fee.

"There's a whole separate problem with this statute, which the judge did not reach," Swander said, "and that was an argument that in our Texas Constitution, if you levy what's called an occupation tax, then one-fourth of the revenue from any occupation tax has to go to the public schools. So what the legislature was trying to do, in my mind, was not call it an occupation tax, but in reality, that's what it was."

"I really think they didn't think about that part of it," he continued. "This was a freshman legislator from Houston, who's well-meaning, who presented this, and I think that in her mind, this was a way for a transfer of wealth, so it's not the case of a religious conservative, for moral reasons, trying to shut down businesses; it's a legislator trying to fund victims programs and looking for sources of revenue."

Once the court's decision has been finalized, which will take place this Friday, Swander expects the state to appeal Judge Jenkins' decision, but Whitehead believes that the legislature will eventually have to come up with a whole new bill if it intends to continue to attempt to levy the "fee," which could generate as much as $40 million per year.

"I doubt they'll be able to overcome the First Amendment issue," Whitehead said.

Taking a lead from Texas, however, the Illinois Senate is currently considering a $2 "adult entertainment facility tax" in order to make up the $1.4 million shortfall in state funds for rape crisis centers this year - with Kankakee County Center Against Sexual Assault (KC-CASA) executive director Susan Wynn claiming that the Texas fee has "worked well." (In fact, the fee, which was scheduled to go into effect in April, was never actually imposed.)

South Carolina, on the other hand, is floating the idea of a 20 percent surcharge on magazines like Playboy and Hustler that Sen. Mike Fair (R-Greenville) considers to be "obscene." The proposal was mentioned today as the Senate Finance Committee began working on its 2009 budget.